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Celanese President Steven Sterin

This year American motorists will burn through 14 billion gallons of ethanol, the end product of 5 billion bushels of corn—a third of the U.S. crop—grown on 33 million acres of farmland. It arguably cuts pollution coming out of U.S. tailpipes, but at a huge cost. Since 2005, when Congress required that ethanol be added to your gas tank, U.S. corn prices have tripled.

Steven Sterin thinks he has a better way. As president of the advanced fuels division at Dallas-based chemicals company Celanese, he’s supervising construction of two new plants—one in Texas, the other in China—to make ethanol. But you won’t see any vats fermenting corn here. Celanese makes its ethanol by tearing apart and recombining the hydrocarbons found in plentiful natural gas or coal. “We have the best gas-to-liquids and coal-to-liquids technology in the world,” he says. If it works, what Sterin is building will revolutionize the fuel industry. But that’s a very big if.

The problem isn’t science. It’s Washington. Thanks to the 2007 Renewable Fuel Standard law, gasoline refiners are mandated to blend so much plant-based or renewable ethanol into the gas supply that it prevents Celanese or any other fossil-fuel-based ethanols from even competing for the market. Though the RFS caps the blending of corn ethanol at 15 billion gallons a year, it calls for total biofuels blending to grow to 36 billion gallons a year by 2022.

Cellulosic ethanol is supposed to make up most of the difference. Maybe you recall President George W. Bush’s 2006 State of the Union address, in which he declared his goal that cellulosic ethanol made from “wood chips and stalks or switchgrass” would be “practical and competitive within six years.” RFS mandated 100 million gallons of cellulosic for 2010, 250 million for 2011 and 500 million this year.

But that hasn’t happened, even though the feds under both Bush and Barack Obama pumped $1.5 billion in grants and loan guarantees into upstart cellulosic producers. Most, like Range Fuels, Cello Energy and E3 BioFuels, have ended up bankrupt. Survivors like Abengoa Bioenergy produced fewer than 6 million gallons last year.

Amazingly, gasoline refiners are still on the hook. For failing to blend into their mix the mandated quantities of a fuel that does not exist, the refiners have gotten a $10 million bill from the Environmental Protection Agency to pay for their so-called waiver credits. They’re appealing.

The corn-dominated ethanol lobby is conflicted about making ethanol out of fossil fuels. On one hand, corn growers don’t want competition from cheap gas. On the other, it’s in the national interest to cut oil imports. “We’re supportive of expanding all renewables and all alternative fuels,” says Matt Hartwig, spokesman for the Renewable Fuels Association. Says Joe Cannon, president of the Fuel Freedom Foundation: “We need every option. There are 2 billion people moving from bicycles to mopeds to cars, and that’s just in India and China.”

Thirteen congressmen led by Pete Olson, whose district around Houston, Tex. encompasses dozens of chemical plants, including Celanese, have introduced a bill to add natgas-derived fuels to the RFS. Any change would face attack from the greens but is supported by animal farmers who want cheaper feed corn. “We would prefer not to have the RFS at all,” says a spokeswoman for Olson, “but this is a step in the right direction.”

How did Celanese get into this business? For 30 years it has been perfecting the process of making acetic acid—more commonly known as vinegar—a chemical feedstock for plastics like vinyl acetate. The company makes a quarter of the world’s supply at giant complexes like those in Nanjing, China and Clear Lake, Tex. The building blocks for these chemicals are cheap natural gas (Texas) and plentiful coal (China). Using steam and catalysts like nickel, Celanese breaks apart the hydrocarbons in these feedstocks and ­reforms them into acetic acid. When coal is used, the gasification process captures bad stuff like mercury and cadmium.

Vinegar and ethanol are closely related. Ethanol is the stuff in a bottle of wine that gets you drunk; vinegar is what the ethanol turns into when you leave the bottle undrunk for too long. Air oxidizes ethanol into vinegar by pulling off its hydrogen atoms. In simplest terms, what Celanese does is reverse the process, taking the acetic acid components it already makes and using metal-based catalysts to add hydrogen to it to form high-purity ethanol. Finding the right catalysts was the real breakthrough.

And while using fossil fuels means emitting carbon dioxide, it’s not clear that corn ethanol is more carbon-friendly. A 2010 study by researchers at Rice University found no reason to believe that the process of planting, tending, harvesting and processing corn into ethanol emits less carbon dioxide than does gasoline.